Manchester Federal Sav. & Loan Ass'n v. State Tax Commission

• Decision Date: 07 June 1963
• Citation: 191 A.2d 529,105 N.H. 17
• Parties: MANCHESTER FEDERAL SAVINGS AND LOAN ASSOCIATION et al. v. STATE TAX COMMISSION et al.
• Court: New Hampshire Supreme Court

Page 529

191 A.2d 529

105 N.H. 17

MANCHESTER FEDERAL SAVINGS AND LOAN ASSOCIATION et al. v. STATE TAX COMMISSION et al.

Supreme Court of New Hampshire.

Argued April 3, 1963.

Decided June 7, 1963.

Booth, Wadleigh, Langdell, Starr & Peters, William J. Starr, Jr., Manchester, for plaintiffs.

William Maynard, Atty. Gen., and Frederic T. Greenhalge, Asst. Atty. Gen., for defendant.

David L. Nixon, Manchester, for New Hampshire Credit Union League, intervenor.

Harrison E. Smith, Nashua, for intervening cooperative banks.

Upton, Sanders & Upton, Richard F. Upton, Concord, for New Hampshire Association of Savings Banks, amicus curiae.

KENISON, Chief Justice.

Prior to 1961 the taxation of banks in this state (RSA ch. 84) and in particular the savings bank tax has had a checkered career. State v. Griffin, 69 N.H. 1, 32-33, 39 A. 260, 41 L.R.A. 177. Chief Justice Doe considered the savings bank tax 'an anomaly' (Boston, C. & M. Railroad Co. v. State, 62 N.H. 648, 649) which was sustainable 'on peculiar grounds of public policy.' Note, Doe of New Hampshire: Reflections on a Nineteenth Century Judge, 63 Harv.L.Rev. 513, 522 (1950). The savings bank tax continued to be treated in a class by itself in subsequent discussions of taxation and constitutional equality. Wyatt v. Board of Equalization, 74 N.H. 552, 570, 70 A. 387; Eyers Woolen Co. v. Gilsum, 84 N.H. 1, 25-26, 146 A. 511, 54 A.L.R. 1196. In 1911 the Legislature denominated it 'an excise tax for the privilege of conducting the business of a savings bank or other such corporation.' Laws 1911, c. 194; RSA 84:9. Prior to 1961 building and loan associations and cooperative banks were taxed (RSA 84:14); no tax was placed on federal savings and loan associations following their creation in 1933; and state-chartered credit unions have not been taxed since 1929. Laws 1929, c. 46; RSA ch. 394.

In recent years the bank tax (RSA 84:9), because of unmerous exemptions (i. e. deposits invested in United States bonds and deposits invested in New Hampshire mortgages at an interest rate not exceeding 5% on April 1 of each year) has yielded less and less revenue. This enabled some financial institutions by changing investments as of April 1 to minimize the tax substantially or avoid it altogether. Those financial institutions which could not or did not change their investments as of April 1 were penalized by paying taxes not borne by others in the banking business. This discrimination and inequality gave impetus to a growing criticism of the pre-1961 bank tax, both within and as well without banking circles, as both ineffectual and unrealistic. This brings us to the challenged legislation. Laws 1961, c. 249; RSA 84:16-a to 84:16-e (supp).

The 1961 act repealed the former bank tax (RSA 84:8-16) and imposed a franchise tax in its place equal to one per cent of the dividends paid during the preceding year by each institution holding savings on deposit or in shares. The new tax was extended to cover federal savings and loan associations and cooperative banks but not state-chartered credit unions.

The plaintiffs do not claim that federal savings and loan associations have 'a total cloak of immunity from taxation by state authority.' They do contend, however, that the taxation of federal savings and loan associations without similar taxation of state credit unions is discriminatory and in violation of federal law. Commissioner of Corporations and Taxation v. Flaherty, 306 Mass. 461; 28 N.E.2d 433. The pertinent part of 12 U.S.C.A. § 1464(h) reads as follows: '* * * No State * * * shall impose any tax on such associations [Federal Savings and Loan Associations] * * * greater than that imposed * * * on other similar local mutual or cooperative thrift and home financing institutions.' There is authority for the proposition that state credit unions are dissimilar to federal savings and loan associations so that the latter may be taxed under this statute although the former are not. State v. Minnesota Federal Savings & Loan Assoc., 218 Minn. 229, 15 N.W.2d 568. In the present case the plaintiffs requested a finding that New Hampshire credit unions and federal savings and loan associations 'perform basically the same functions in the field of receiving money from members and making loans upon the security of real estate mortgages.' The Trial Court denied this request. The following finding, however, was made: 'That the primary purpose of state chartered credit unions is to make personal secured and unsecured loans to their members, while the Petitioners' principal purpose is to make loans upon homes or combinations of homes and business property.' There is support in this record for the Trial Court's actions which were also consistent with State v. Minnesota Federal Savings & Loan Assoc., supra.

Since the first credit union in the United States was established in Manchester, New Hampshire (St. Mary's Co-operative Credit Association) in 1909 by a special act of the Legislature (Laws 1909, c. 303), credit unions have been generally regarded as different from other banking institutions. Wilson, Common Sense Credit 1, 47 (1962). See Bridewell, Credit Unions, c. 32 (1962). The fact that this first credit union subsequently became a bank (Laws 1961, c. 342) does not prove that credit unions (RSA ch. 394) are synonymous with federal savings and loan associations, cooperative banks and savings banks. The federal savings and loan associations have from 85% to 90% of their assets in first mortgage loans while the credit unions have only 35% of their assets invested in real estate mortgages. Loans of credit unions are smaller in average amount ($767 in 1961) than the plaintiffs. For example one of the six plaintiffs made mortgage loans averaging $4,200 per loan. Reports of the Bank Commissioner disclose that credit unions have smaller assets, grant more unsecured loans and fewer real estate loans, own less property and real estate, than the plaintiffs and other banks. Credit unions are restricted by statute in the payment of compensation to officers (RSA 394:29) and by member-voting limitations (RSA 394:11). Credit unions are engaged primarily in short-term loans and this is different from real estate loans which are usually long term. The Trial Court could find as...